Think twice before selling all your stock and moving to cash

Updated: May 22, 2020


photo of a closeup of a mobile device tablet showing stock market data, with an executive's pen alongside and a headline that States THINK TWICE, indicating proceed with caution and do not panic by selling stocks in turbulent times.

Yes, with the markets taking a nosedive, many investors feel tempted to move their investments to cash and just wait for the dust to settle. It’s true, stocks fell steeply all week, following Asian and European markets as news of the coronavirus continued to unfold.

But market experts and wealth managers say the first thing investors should do is take a deep breath. Don’t panic and make your financial position worse.


If you do want to sell your stocks, the question is: At what point would you get back in? And what do you risk in making that move?

“There can be value in holding cash, but it should be part of a larger plan, not because you’re running for the hills,” said CFP Erika Safran, of Safran Wealth Advisors in New York.

For long-term investors, experts advise remaining invested even through a downturn. Remember the stock market might jump around or enter a prolonged downturn, but losses only get locked in if you sell. History shows that over time the market ends up going back up — and surpassing its previous high.


CNBC’s Sarah O’Brien sketched out a scenario to illustrate the stakes. She explains, “If you had invested $10,000 in the S&P 500 index? At the beginning of 1999, it would have grown to nearly $30,000 by the end of 2018, provided you hadn’t touched it. In contrast, missing out on the 10 best-performing days during that 20-year period would have cut your returns in half.”


We just cannot predict what stocks are going to do next. Based on history, staying on the sideline can mean missing out on the best-performing days of the market – regardless of when the bad days are. And that can hurt your portfolio. Chris Hogan, best-selling author and personal finance expert, says, “Trying to time the market is a fool’s game. You have to keep a big-picture perspective.”


Staying invested, even during a downturn, shows higher performance over time. In fact, missing out on just the 10 best days reduces the growth of the initial investment by more than half. And missing the best 20 days cause returns in the red.


The point? If you leave your money alone for a long period of time and invest with the long term in mind, you’ll come out ahead. So, be patient.


“If you’re in the stock market, you should have a long-term horizon,” said Mark Zandi, chief economist at Moody’s Analytics. “We’re now in fear mode, but it can quickly turn around. Late 2018 is a pretty good case in point. It’s a lesson not to get caught up in the emotion.”

He thinks we might not have seen the worst of it yet, given the growing spread of the coronavirus and the questions about transmission and fatality rates. “This suggests it's going to be highly disruptive to the economy… but that still doesn't mean you go out and sell,” he said.


John Perrone, from Brixton Capital Wealth Advisors, says, “Focusing on a long-term point of view to investing will help get you past short-term corrections and pullbacks. Throughout history, after experiencing those setbacks, the market has rallied back to new highs, given enough time. During these difficult down periods, we emphasize patience and taking a longer-term point of view."


If you’re worried, meet with your investment advisor to talk over your concerns and make any changes to your portfolio. But don’t panic and stuff your mattress with money. Acting out of fear can lead to expensive mistakes and lost opportunities.

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